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Subgame perfect manipulation of children by overlapping generations of agents with two-sided altruism and endogenous fertility

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Author Info

  • Lakshmi K. Raut

    (University of Hawaii-Manoa)

Abstract

In this paper we consider an overlapping generations model with endogenous fertility and two-sided altruism and show the limitations of applying commonly used open loop Nash equilibrium in characterizing equilibrium transfers from parents to children in the form of bequest, and transfers from children to parents as voluntary old-age support. Since in our model children are concerned with parents' old-age consumption, agents have incentives to save less for old age and to have more children so as to strategically induce their children to transfer more old-age support. We formulate such strategic behavior within a sequential multi-stage game and use the notion of subgame perfect equilibrium to study the consequences of such strategic manipulations on private intergenerational transfers, fertility and savings decisions, and on Pareto optimality of equilibrium allocation. We then examine the role of social security to correct such strategic distortions.

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Bibliographic Info

Paper provided by EconWPA in its series Labor and Demography with number 9604003.

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Length: 16 pages
Date of creation: 05 Apr 1996
Date of revision:
Handle: RePEc:wpa:wuwpla:9604003

Note: Type of Document - Tex; prepared on IBM PC-TEX; to print on PostScript; pages: 16 ; figures: included. This is for electronic circulation to reduce our mailing and xerox cost.
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Web page: http://128.118.178.162

Related research

Keywords: two-sided altruism; endogenous fertility; subgame perfect manipulation of children; social security;

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References

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  1. Lakshmi Kanta Raut, 1992. "Effect of Social Security on Fertility and Savings: An Overlapping Generations Model," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 27(1), pages 25-43, July.
  2. Balasko, Yves & Shell, Karl, 1980. "The overlapping-generations model, I: The case of pure exchange without money," Journal of Economic Theory, Elsevier, vol. 23(3), pages 281-306, December.
  3. Nishimura, Kazuo & Zhang, Junsen, 1992. "Pay-as-you-go public pensions with endogenous fertility," Journal of Public Economics, Elsevier, vol. 48(2), pages 239-258, July.
  4. Gary S. Becker & Robert J. Barro, 1986. "A Reformulation of the Economic Theory of Fertility," NBER Working Papers 1793, National Bureau of Economic Research, Inc.
  5. Veall, Michael R., 1986. "Public pensions as optimal social contracts," Journal of Public Economics, Elsevier, vol. 31(2), pages 237-251, November.
  6. Diamond, P. A. & Mirrlees, J. A., 1978. "A model of social insurance with variable retirement," Journal of Public Economics, Elsevier, vol. 10(3), pages 295-336, December.
  7. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
  8. Bernheim, B Douglas & Shleifer, Andrei & Summers, Lawrence H, 1986. "The Strategic Bequest Motive," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages S151-82, July.
  9. Pollak, Robert A, 1988. "Tied Transfers and Paternalistic Preferences," American Economic Review, American Economic Association, vol. 78(2), pages 240-44, May.
  10. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  11. Lakshmi Raut, 2006. "Two-sided altruism, Lindahl equilibrium, and Pareto optimality in overlapping generations models," Economic Theory, Springer, vol. 27(3), pages 729-736, 04.
  12. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  13. Gary S. Becker, 1974. "A Theory of Social Interactions," NBER Working Papers 0042, National Bureau of Economic Research, Inc.
  14. Raut, L. K., 1990. "Capital accumulation, income distribution and endogenous fertility in an overlapping generations general equilibrium model," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 123-150, November.
  15. Diamond, P. A., 1977. "A framework for social security analysis," Journal of Public Economics, Elsevier, vol. 8(3), pages 275-298, December.
  16. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Western Economic Association International, vol. 13(3), pages 373-88, September.
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Citations

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Cited by:
  1. Mikhail Golosov & Larry E Jones & Michèle Tertilt, 2003. "Effciency with Endogenous Population Growth," Levine's Working Paper Archive 666156000000000310, David K. Levine.
  2. Robert Kollmann, 1997. "Endogenous fertility in a model with non-dynastic parental preferences," ULB Institutional Repository 2013/7638, ULB -- Universite Libre de Bruxelles.
  3. Donald Cox & Oded Stark, 1996. "Intergenerational Transfers and the Demonstration Effect," Boston College Working Papers in Economics 329., Boston College Department of Economics.

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